The credit quality of Indian companies remained strong between October 2023 and March 2024 (H2FY24), supported by deleveraged balance sheets, sustained domestic demand, and government-led capital expenditure. Rating upgrades continued to surpass rating downgrades in H2FY24. In all, there were 409 upgrades and 228 downgrades in H2FY24, according to rating agency CRISIL.
The credit ratio, rating upgrades to downgrades, moderated to 1.79 times in the second half of the financial year 2024 (H2FY24) compared with 1.91 times for April-September 2023 (H1FY24).
For the new financial year starting April 2024 (FY25), the credit quality outlook remains positive, with upgrades seen continuing to outpace downgrades, driven by domestic demand, low corporate debt levels, and tailwinds from the ongoing infrastructure build-out.
Gurpreet Chhatwal, managing director of CRISIL Ratings, said, "The three key pillars of India Inc's credit quality — deleveraged balance sheets, sustained domestic demand, and government-led capex — kept the upgrade rate elevated in the second half of the financial year 2024. That's above the 10-year average for the sixth consecutive half-year."
While commodity prices have softened, the revenue of upgraded companies grew by about 13 per cent in the financial year 2024, largely led by a pick-up in volume. With balance sheets in most sectors at their healthiest, capacity utilisation around peak levels, and expected interest rate cuts, a broad-based pick-up in private capex is finally in sight, he added.
For the current financial year (FY25), as many as 21 of 26 corporate sectors tracked by CRISIL have strong to favourable credit quality outlooks. This is marked by robust balance sheets and healthy operating cash flows — expected to be as much, or higher, than in FY24. These sectors with a better asset quality outlook include auto-component manufacturers and hospitality and education sector companies, where credit quality is supported by healthy domestic demand.
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CRISIL said it also covers sectors benefiting from the government's infrastructure spending, such as construction companies and steel, cement, and capital goods manufacturers.
Flagging rough times for some sectors, CRISILid four corporate sectors—speciality chemicals, agrochemicals, textile cotton spinning, and diamond polishers—are facing headwinds as their fortunes are aligned with global macroeconomic conditions, which are subdued at present. However, these sectors do have strong balance sheets, and hence, the outlook on the sectors is stable to moderate, CRISIL added.